HMRC tax code: Millions of employees overpaying tax due to wrong code – how to check

Approximately 14.3 million people (44 per cent of employees) across the UK have paid too much tax as a result of being on the wrong tax code, or through errors with deductions, according to new research. What’s more, seven per cent of employees (2.8 million) claim to have been affected in the past year alone. The research of more than 2,000 people in the UK also suggests there is confusion when it comes to payslips. The figures suggest that 69 per cent of employees (22.4 million) believe that it’s not their responsibility to check they’re paying the correct amount of tax.

Almost a quarter (23 per cent) of all employees have four or more regular deductions from their gross pay, such as travel loans, childcare vouchers, student loans, gym memberships, and medical insurance, which may affect on’s tax code.

Shaun Shirazian, Head of Product at Intuit QuickBooks UK, who conducted the research said: “Many of us can feel a bit lost when checking our payslips and feel unsure about the multiple factors that contribute to our adjusted pay.

“Taxes are complex and the research shows that significant overpaying of tax is caused by payroll issues, such as being on the wrong tax code, or errors with deductions such as childcare vouchers.”

The research found that while overpaying tax due to payroll issues was prevalent across employees of companies of all sizes, employees of smaller businesses were significantly less likely to check their payslip for mistakes.

Mr Shirazian added: “Small businesses in particular have many different areas of a business to manage, often with limited support in terms of man-power.

“They want to get pay right for their employees but – as this research shows – there are sometimes a multitude of challenges in ensuring this is watertight.

“We want to be able to give these business owners the tools and support they need to help their employees get paid properly and accurately.”

Gov.uk offers guidance on checking if a tax code is correct.

The most common tax code in the tax year of 2019 to 2020 is 1250L.

However, there are a whole host of reasons why the letters and numbers in a tax code may differ to this.

In order to determine a person’s tax code, HMRC works out the taxpayer’s tax-free Personal Allowance.

The income that tax has not been paid on (such as untaxed interest or part-time earnings) and the value of any benefits from one’s job are then added up.

The income that tax has not been paid on is then deducted forth Personal Allowance, with whatever is left being the tax-free income one is allowed in the tax year.

Finally, the last digit of this tax-free income amount is removed, forming the number in the tax code.